UPDATE 1-BNP, Santander in race for Poland's BGZ -sources

WARSAW, Oct 4 (Reuters) - France’s BNP Paribas and Spain’s Banco Santander are set to compete against Italy’s UniCredit in the race to acquire Polish lender BGZ in a deal worth some $1.2 billion, market sources told Reuters on Friday.

While some troubled foreign lenders have unloaded Polish holdings to boost their capital positions, others are keen to strengthen their place in the biggest eastern European economy.

Rabobank, the biggest Dutch retail bank, said in June it was reviewing its options for BGZ. On Thursday, the lender said it had not yet decided whether to sell its 98-percent stake after UniCredit’s chief executive said it had made a preliminary offer via its Pekao unit.

“Pekao and (Santander’s Polish unit) Bank Zachodni WBK are there,” one person familiar with the planned transaction said. “BNP is also keenly interested and is already running due diligence.”

Another source also named the three banks, confirming an earlier report by Puls Biznesu newspaper.

The daily, citing unnamed sources, said a formal decision on the deal would be made later this month or in early November.

BGZ, BNP Paribas and Santander declined to comment.

Santander’s BZ WBK unit said earlier this week it wanted to take an active role in the consolidation of Poland’s financial sector.

Poland’s bank sector has for years has been under strict supervision and has been relatively healthy in comparison with those of many other European nations. ($1 = 3.0853 Polish zlotys) (Reporting by Adrian Krajewski and Marcin Goclowski; Additional reporting by Lionel Laurent in Paris and Sarah White in Madrid, editing by Patrick Lannin)